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Report: Estonia needs to raise productivity

Jul 26, 2006
From wire reports

TALLINN - To maintain rapid economic growth, Estonian businesses need to make significantly larger investments to raise productivity starting this year, Hansabank Markets said in its latest Baltic macroeconomic survey. Modernization of production and growth of productivity would ensure the competitiveness of the Estonian economy and keep the economy growing at a rate of 6 's 6.5 percent annually in the coming years, the report said.

Large investments would allow for the creation of more value-added production with a smaller number of workers, which in turn would mean a significant structural change in the economy. Such development would, in the bank's estimate, entail inflation of 3 - 4 percent in forthcoming years.
Under a negative development scenario, investment in the economy would remain modest, as a result of which growth will slow down to 5 - 6 percent, and inflation will climb to the same level, the bank added.
Hansabank's forecast at present is more in keeping with a positive scenario, but over the past month the likelihood of a positive scenario materializing has diminished rapidly.

Due to fast economic growth and shortage of labor, the two development scenarios could also become topical in neighboring Latvia and Lithuania in coming years, Hansabank noted.
Regarding labor shortages, the Statistical Office confirmed last week that problems are due to arise due to the shrinking pool of workers - the number of employed 15 - 64 year-olds will drop by 50,000 to 550,000 by 2015, the office said - and that people should be brought in from outside or productivity should be raised.
"Our productivity currently makes up about 50 percent of the EU average," said Mihkel Servinski, chief analyst at the statistics office. "That doesn't mean that Estonians don't know how to work, it's rather a problem of management or obsolete technologies."

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